Managerial accounting workbook version 1 PDF

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Managerial Accounting Workbook (Version 1.0)

Tony Bell © Tony Bell, 2016

Tab Table le of C Cont ont onten en ents ts A Note to Instructors ............................................................................................................. 3 Module 1: Introduction to Managerial Accounting ................................................................. 4 Module 2: Cost Concepts and the Schedule of Cost of Goods Manufactured ........................... 7 Module 3: Job-Order Costing ............................................................................................... 13 Module 4: Process Costing ................................................................................................... 22 Module 5: Activity-Based Costing ........................................................................................ 31 Module 6: Cost Behaviour ................................................................................................... 36 Module 7: Cost-Volume-Profit Analysis ................................................................................ 42 Module 8: Budgeting ........................................................................................................... 50 Module 9: Standard Costs and Variance Analysis ................................................................. 62 Module 10: Flexible Budgeting ............................................................................................. 69 Module 11: Performance Measurement: ROI, Residual Income and the Balanced Scorecard 72 Module 12: Relevant Costs for Decision Making ................................................................... 76 Module 13: Capital Budgeting .............................................................................................. 86

A No Note te to IIn nst stru ru ructo cto ctors rs I hope you find this workbook useful, I just want to point out three key features: 1.) This book is totally free to you and your students. Feel free to copy it or post it to your course website and feel free to share it with colleagues. 2.) Although I am widely distributing a PDF file, I have gone to great effort to make a fully editable Word version of this document. Please contact me if you’d like to have a copy of the Word version. You can edit any of these problems to better fit in your class or simply copy and paste an entire problem into an assignment or test, with the attribution “Source: accountingworkbook.com”, or “Adapted from: accountingworkbook.com”. 3.) Every problem in this workbook has a video walkthrough available at http://accountingworkbook.com. I suspect the true value in this book lies in the video walkthroughs, as it will be useful for homework and particularly useful for “flipping the classroom”. Please let me know if you would like to see additional question-types or topics included in the future. I intend to add to this book frequently based on your input. Also, any feedback you can provide (particularly student feedback) would be greatly appreciated. Please note, you do not have my permission to use this for a commercial purpose, nor do you have permission to recreate the videos found at http://accountingworkbook.com. Send me an email if you have any questions about use or attribution. Thanks for checking out this workbook, and I hope you’ll have a look at the companion website: http://accountingworkbook.com !

Tony Bell [email protected]

Module 1: Introduction to Managerial Accounting

Author’s note regarding Module 1 content: This workbook was created to mirror most introductory management accounting textbooks; as such, this is an unusual module. The first chapter in most textbooks is composed of purely qualitative content and this workbook was built to match. Subsequent modules in this workbook will have A and B versions of numerical questions to allow students the opportunity to practice.

1-1 – Financial vs Managerial Accounting Distinguish between financial and managerial accounting.

1-2 - Ethics Explain the importance of ethics in accounting.

1-3 – Planning, Directing and Controlling The three main tasks of a manager are said to be planning, directing and controlling. Explain the three tasks.

1-4 – Terminology and acronyms Define: JIT, TQM, ABC, theory of constraints, Six Sigma, and the balanced scorecard.

Module 2: Cost Concepts and the Schedule of Cost of Goods Manufactured

2-1A – Cost Classification The following are costs of Big Rig Trucks, a manufacturer of large diesel vehicles. 1.) Aluminum used in manufacturing each truck’s body. 2.) Factory supervisor’s salary. 3.) Company president’s salary. 4.) Cleaning supplies used for daily cleanup. 5.) Wages of workers who build the engines. 6.) Patent lawyer’s costs. 7.) Accounting fees. 8.) Depreciation on sales person’s car. Required: For each cost, identify it as: a.) Variable or Fixed b.) Product or Period c.) Direct Material, Direct Labour, Manufacturing Overhead, Selling, Administrative or Research and Development.

2-1B – Cost Classification The following are costs of Betty’s Burger Truck – a food truck operating in downtown Seattle. 1.) Cooks’ wages. 2.) Propane costs to heat the grill. 3.) Gasoline costs to travel to events. 4.) Painting company logo on the side of the truck. 5.) Business license. 6.) Depreciation on the cooking equipment. 7.) Costs of improving the recipe for new bison burger. 8.) Burger meat. Required: For each cost, identify it as: a.) Variable or Fixed b.) Product or Period c.) Direct Material, Direct Labour, Manufacturing Overhead, Selling, Administrative or Research and Development.

2-2A – Schedule of Cost of Goods Manufactured Kelowna Plumbing Supplies shows the following data related to its December 31, 2017 fiscal year: Raw materials inventory, January 1, 2017 Raw materials inventory, December 31, 2017

$5,000 8,000

Work in process inventory, January 1, 2017 Work in process inventory, December 31, 2017

23,000 21,000

Finished goods inventory, January 1, 2017 Finished goods inventory, December 31, 2017

16,000 10,000

Advertising Factory supervisor's salary

56,000 42,000

Company president's salary Property taxes - factory

85,000 25,000

Depreciation - factory Factory maintenance

35,000 7,000

Sales commissions Depreciation - office

32,000 2,000

Utilities expense - factory Utilities expense - office

23,000 11000

Purchases of raw materials Direct labour

148,000 160,000

Required: Based on the information above, prepare a schedule of cost of goods manufactured.

2-2B – Schedule of Cost of Goods Manufactured Vernon Bakery shows the following data related to its August 31, 2017 fiscal year: Raw materials inventory, September 1, 2016

$2,400

Raw materials inventory, August 31, 2017 Work in process inventory, September 1, 2016

1,600 200

Work in process inventory, August 31, 2017 Finished goods inventory, September 1, 2016

150 1,000

Finished goods inventory, August 31, 2017 Rent on the commercial kitchen

900 12,000

Depreciation of delivery vehicle Salary paid to head baker

1,500 42,000

Purchases of raw materials Delivery costs

58,000 2,500

Utilities expense - office Depreciation - kitchen equipment

600 2,000

Dividends paid to shareholders Utilities expense - kitchen

10,000 1,200

Marketing Wages paid to kitchen cleaning staff

3,000 16,000

Wages paid to assistant bakers

65,000

Required: Based on the information above, prepare a schedule of cost of goods manufactured.

2-3A – Schedule of COGM, Schedule of COGS and Income Statement Outdoor Supplies manufactures gear for hunting and camping. The company shows the following data related to its December 31, 2017 fiscal year end: Raw materials inventory, January 1, 2017 Raw materials inventory, December 31, 2017 Work in process inventory, January 1, 2017 Work in process inventory, December 31, 2017

$14,000 17,000 31,000 20,000

Finished goods inventory, January 1, 2017 Finished goods inventory, December 31, 2017 Direct labour Factory supervisor's wages Company president's salary Purchases of raw materials

84,000 68,000 275,000 64,000 120,000 425,000

Depreciation (60% factory, 40% office) Property taxes (80% factory, 20% office) Sales commissions Repairs and maintenance (100% relate to the factory) Utilities expense (90% factory, 10% office) Sales revenue Advertising Required: Based on the information above: a.) Prepare a schedule of cost of goods manufactured. b.) Prepare a schedule of cost of goods sold. c.) Prepare an income statement (assuming a tax rate of 20%.)

240,000 20,000 100,000 15,000 30,000 2,050,000 215,000

2-3B – Schedule of COGM, Schedule of COGS and Income Statement HiSing manufactures beverages for the Taiwanese market. The following data relate to its July 31, 2017 fiscal year end: Raw materials inventory, August 1, 2016 Raw materials inventory, July 31, 2017 Work in process inventory, August 1, 2016 Work in process inventory, July 31, 2017

$185,000 140,000 25,000 35,000

Finished goods inventory, August 1, 2016 Finished goods inventory, July 31, 2017 Direct labour Sales commissions Factory supervisors’ wages Company president's salary

375,000 390,000 1,200,000 400,000 240,000 250,000

Purchases of raw materials Property taxes (75% factory, 25% office) Depreciation (90% factory, 10% office) Repairs and maintenance (95% factory, 5% office) Utilities expense (90% factory, 10% office) Sales revenue Advertising Required: Based on the information above: d.) Prepare a schedule of cost of goods manufactured. e.) Prepare a schedule of cost of goods sold. f.) Prepare an income statement (assuming a tax rate of 25%.)

3,250,000 100,000 1,700,000 200,000 600,000 10,300,000 2,000,000

Module 3: Job-Order Costing

3-1A – Job Order Costing vs Process Costing For each of the companies listed below, note which costing method would be more appropriate: Job Order Costing (J), or Process Costing (P): a.) b.) c.) d.) e.) f.) g.) h.)

A company that does car repair A company that does architectural design A company that makes yoga mats A company that gives immigration consulting advice A company that refines oil into gasoline An accounting firm A company that manufactures crayons A company that makes designer handbags

3-1B – Job Order Costing vs Process Costing For each of the companies listed below, note which costing method would be more appropriate: Job Order Costing (J), or Process Costing (P): a.) b.) c.) d.) e.) f.) g.) h.)

A company that produces cutlery An engineering company A home renovation contractor A fire extinguisher manufacturer A custom cabinet manufacturer A pop songwriter A cellphone maker A cellphone repair shop

3-2A – Predetermined overhead rate: costing an individual job Tony’s Tables makes high-end, custom boardroom tables. The company applies overhead costs to jobs on the basis of direct labour hours. The company estimates manufacturing overhead for the year to be $320,000. The company expects its direct labour workforce to work for 20,000 hours during the year. Job #1843 shows the following cost information: Walnut:

300 board feet used at a cost of $15 per board foot.

Labour:

240 hours at a cost of $20 per hour.

Required: a.) Compute the cost of the job. b.) Assuming the company marks up their price to by three times the cost, what will the company charge its customer for the table?

3-2B – Predetermined overhead rate: costing an individual job Ready Brakes specializes in brake repair in automobiles. The company applies overhead costs to jobs on the basis of direct labour hours. For the current year, total manufacturing overhead was expected to cost $50,000. The total expected direct labour hours were anticipated to be 8,000. The company was working on job #842, a brake pad replacement on a Volkswagen Golf. The following costs were incurred: New Brake Pads:

$8

Labour:

40 minutes of employee time – wage rate of $9 per hour.

Required: a.) Determine the cost of the job. b.) Assuming the company charges a flat rate of $50 to replace brake pads, how much gross profit will have been earned on Job #842?

3-3A – Predetermined Overhead Rate, Overapplied and Underapplied Overhead Cabinets4U makes and installs custom cabinets for home renovations. The company applies overhead on the basis of direct labour hours. The company estimates its annual overhead to be $125,000 and it expects employees to work 10,000 hours. During the year, employees actually worked 11,000 hours and the actual amount spent on overhead was $130,000. Required: a.) Compute the predetermined overhead rate. b.) How much overhead would be applied to jobs during the year? c.) By how much was overhead overapplied or underapplied for the year?

3-3B – Predetermined Overhead Rate, Overapplied and Underapplied Overhead Jake’s Autobody is a car repair shop. The company uses direct labour cost as a basis for applying manufacturing overhead costs to jobs. The company estimates its annual overhead to be $140,000 and it expects employees to work 20,000 hours at an average wage rate of $12 per hour. During the year, employees actually worked 18,000 hours (at a wage rate of $12.25 per hour) and the actual amount spent on overhead was $150,000. Required: a.) Compute the predetermined overhead rate. b.) How much overhead would be applied to jobs during the year? c.) By how much was overhead overapplied or underapplied for the year?

3-4A – Journal Entries of Job Order Costing Intercity Roofing manufactures and installs custom shingles for use on damaged roofs of residential houses and apartments. The company uses a specialized manufacturing process to ensure the replacement shingles are an exact match with the existing roof. The company uses a job order costing system to apply manufacturing overhead on the basis of direct labour cost. The company estimates that during the next year, it will incur $70,000 in overhead costs and will pay $140,000 in direct labour costs. During the year, the following transactions occurred: a.) Purchased $180,000 of direct materials on account. b.) Purchased $5,000 of supplies on account. (The supplies consisted of glue and cleaning supplies.) c.) Requisitioned $170,000 of direct materials and $4,500 of supplies for use in production. d.) Incurred employee costs: i. Direct labour $150,000 ii. Indirect labour 40,000 iii. Administrative salaries 190,000 iv. Sales salaries 30,000 v. Sales commissions 90,000 e.) Advertised on local television: $5,000 f.) Rent: $12,000. 40% of the space related to sales offices, 60% was a shop used in production of roofing materials. g.) Depreciation: $25,000. 70% relates to roofing equipment, 30% relates to office equipment. h.) Insurance expired: $15,000. 90% relates to the factory, the remainder relates to insurance on the office equipment. i.) Manufacturing overhead costs were applied to production. j.) Goods costing $375,000 were completed. k.) The company had sales on account of $800,000. According to cost data, the jobs cost $350,000. Required: a.) For items a.)-k.) above, record journal entries. Unless otherwise noted, assume all transactions were on account. b.) Was overhead overapplied or underapplied for the period? By how much? c.) Record a journal entry to close overhead to cost of goods sold. d.) Based on the information above, prepare an income statement for the company – assume a 20% tax rate.

Module 3: Job-Order Costing

3-1A – Job Order Costing vs Process Costing For each of the companies listed below, note which costing method would be more appropriate: Job Order Costing (J), or Process Costing (P): a.) b.) c.) d.) e.) f.) g.) h.)

A company that does car repair A company that does architectural design A company that makes yoga mats A company that gives immigration consulting advice A company that refines oil into gasoline An accounting firm A company that manufactures crayons A company that makes designer handbags

3-1B – Job Order Costing vs Process Costing

For each of the companies listed below, note which costing method would be more appropriate: Job Order Costing (J), or Process Costing (P): a.) b.) c.) d.) e.) f.) g.) h.)

A company that produces cutlery An engineering company A home renovation contractor A fire extinguisher manufacturer A custom cabinet manufacturer A pop songwriter A cellphone maker A cellphone repair shop

3-2A – Predetermined overhead rate: costing an individual job Tony’s Tables makes high-end, custom boardroom tables. The company applies overhead costs to jobs on the basis of direct labour hours. The company estimates manufacturing overhead for the year to be $320,000. The company expects its direct labour workforce to work for 20,000 hours during the year. Job #1843 shows the following cost information: Walnut:

300 board feet used at a cost of $15 per board foot.

Labour:

240 hours at a cost of $20 per hour.

Required: a.) Compute the cost of the job. b.) Assuming the company marks up their price to by three times the cost, what will the company charge its customer for the table?

3-2B – Predetermined overhead rate: costing an individual job Ready Brakes specializes in brake repair in automobiles. The company applies overhead costs to jobs on the basis of direct labour hours. For the current year, total manufacturing overhead was expected to cost $50,000. The total expected direct labour hours were anticipated to be 8,000. The company was working on job #842, a brake pad replacement on a Volkswagen Golf. The following costs were incurred: New Brake Pads:

$8

Labour:

40 minutes of employee time – wage rate of $9 per hour.

Required: a.) Determine the cost of the job. b.) Assuming the company charges a flat rate of $50 to replace brake pads, how much gross profit will have been earned on Job #842?

3-3A – Predetermined Overhead Rate, Overapplied and Underapplied Overhead Cabinets4U makes and installs custom cabinets for home renovations. The company applies overhead on the basis of direct labour hours. The company estimates its annual overhead to be $125,000 and it expects employees to work 10,000 hours. During the year, employees actually worked 11,000 hours and the actual amount spent on overhead was $130,000. Required: a.) Compute the predetermined overhead rate. b.) How much overhead would be applied to jobs during the year? c.) By how much was overhead overapplied or underapplied for the year?

3-3B – Predetermined Overhead Rate, Overapplied and Underapplied Overhead Jake’s Autobody is a car repair shop. The company uses direct labour cost as a basis for applying manufacturing overhead costs to jobs. The company estimates its annual overhead to be $140,000 and it expects employees to work 20,000 hours at an average wage rate of $12 per hour. During the year, employees actually worked 18,000 hours (at a wage rate of $12.25 per hour) and the actual amount spent on overhead was $150,000. Required:

a.) Compute the predetermined overhead rate. b.) How much overhead would be applied to jobs during the year? c.) By how much was overhead overapplied or underapplied for the year?

3-4A – Journal Entries of Job Order Costing Intercity Roofing manufactures and installs custom shingles for use on damaged roofs of residential houses and apartments. The ...